[Annotated] Senator Wyden's comments to Treasury on long/short strategies

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Senator Wyden of Oregon sent a letter to Treasury in response to Notice 2026-62, concerning several tax-aware strategies, roughly split between ETFs and private funds. He suggests that tax-aware long/short strategies that harvest capital losses (distinguishable from the trader funds that potentially harvest ordinary losses) should become Listed Transactions and have the straddle rules apply, which would, among other things, defer at least some harvested tax-losses.

From my initial read, any changes, including Listed Transaction status would require new regulations, which entail comment and notification, and would generally apply prospectively, except in circumstances of abuse, though could require reporting from previous time periods.

The straddle rules generally apply if two conditions are satisfied: offsetting positions and personal property.

Senator Wyden's approach suggests "offsetting" positions several times, though the second condition of "personal property" must also be satisfied.

"Personal property" has a convoluted definition, but you can see my notes in my annotated version of Sen. Wyden's letter for more detail. Suffice it to say, that this condition, at least by my early read, does not appear to be satisfied, and would require new regulation. My interpretation might change as I spend more time with this.

It is possible a "pairwise" (my terminology) application of the straddle rules, somewhat similar to Example 2. Common stock value primarily reflects commodity price might apply, though I would also caution that this is a very early read and needs more analysis.

Thanks for reading. Enjoy All Saints' Day.